Being involved in an accident using a leased car can be a problematic and confusing situation. Unlike owning a car, there are rules, responsibilities, and financial implications that come with leasing. If your leased car is involved in an accident, particularly if it is totaled, knowing what to do in such a situation is important.
In this article, you’ll find out what to do if your leased car is wrecked or totaled, who pays for fixes, how insurance covers it, and what your choices are if the vehicle cannot be fixed.
Understanding Leased Vehicles
A leased vehicle is a car that you rent for a set period, usually 24 to 48 months, under a leasing agreement. You make monthly payments for the right to use the car, but you do not own it. The vehicle remains the property of the leasing company (lessor), even if you are the one driving it.
Key Terms in Leasing
- Lessor: The company or financial institution that owns the vehicle.
- Lessee: You, the person leasing the vehicle.
- Residual Value: The estimated value of the vehicle at the end of the lease term.
- Gap Insurance: Coverage that protects you if your leased vehicle is totaled and the insurance payout is less than the amount owed on the lease.
What Happens If a Leased Vehicle Is Involved in an Accident?
If your leased vehicle is involved in an accident, the process for handling the damage will differ depending on whether the car is repairable or declared a total loss.
1. Minor Accident (Repairable)
- Report the Accident: Immediately notify your insurance company and the leasing company.
- Insurance Coverage: Your auto insurance (or the at-fault driver’s insurance) will cover the repair costs, subject to your deductible.
- Approved Repairs: The leasing company may require that the repairs be done at an authorized repair facility.
- Lease Terms: Review your lease agreement for any clauses about repairs, as you may be responsible for using original parts or maintaining specific standards.
2. Total Loss (Non-Repairable)
If the insurance company determines that the cost of repairs exceeds the car’s value, it will be declared a total loss.
- Insurance Payout: The insurance company will pay the actual cash value (ACV) of the vehicle, minus your deductible.
- Lease Balance: The payout will go to the leasing company to pay off the remaining balance of the lease.
- Gap Insurance: If the insurance payout is less than what you owe on the lease, gap insurance (if you have it) will cover the difference.
- No Gap Insurance: If you do not have gap insurance, you may be personally responsible for paying the remaining balance on the lease.
Understanding Gap Insurance
Gap insurance is crucial for leased vehicles because it protects you from financial loss if the car is totaled.
How Gap Insurance Works
- If the lease balance is $25,000 but the insurance company values the totaled vehicle at $20,000, there is a $5,000 gap.
- Without gap insurance, you must pay this difference out of pocket.
- With gap insurance, the coverage pays the remaining balance directly to the leasing company.
Is Gap Insurance Mandatory?
- Many leasing companies require you to carry gap insurance as part of the lease agreement.
- If it is not required, it is still highly recommended, especially for new vehicles that depreciate quickly.
Filing an Insurance Claim for a Leased Vehicle
Here are the steps on filing an insurance claim for a leased vehicle:
Step 1: Report the Accident
- Contact your insurance company immediately.
- Notify the leasing company as well.
Step 2: Obtain an Estimate
- An insurance adjuster will assess the damage and determine whether the vehicle is repairable or a total loss.
Step 3: Complete Repairs or Settle Total Loss
- If repairable, arrange for the vehicle to be fixed at an authorized repair shop.
- If declared a total loss, your insurance company will pay the leasing company directly.
Step 4: Understand Your Financial Responsibility
- If you have gap insurance, the remaining lease balance will be covered.
- If you do not have gap insurance, you will be responsible for the unpaid balance.
What If You Are Not at Fault for the Accident?
If another driver is at fault for the accident involving your leased vehicle:
- Their Insurance Pays: The at-fault driver’s insurance should cover the repairs or total loss value.
- Subrogation: Your insurance company may seek reimbursement from the at-fault driver’s insurer if you file a claim under your own policy.
- You Are Still Responsible: You must still comply with the leasing company’s repair and insurance requirements.
Returning a Repaired Leased Vehicle
If your leased vehicle is repaired after an accident, you will still be responsible for any lease-end inspections, which may identify:
- Diminished Value: Even with repairs, the car may be worth less, which can result in additional charges.
- Excessive Wear and Tear: Damage that goes beyond normal use may lead to penalties.
Tips to Avoid Lease-End Penalties
- Ensure repairs are completed to manufacturer standards.
- Obtain documentation proving that repairs were made.
- Consider purchasing a lease protection plan for additional coverage.
Totaling a Leased Vehicle – Who Pays for What?
1. Insurance Company
- Pays the actual cash value (ACV) of the vehicle.
- Sends the payment directly to the leasing company.
2. Gap Insurance Provider (If You Have It)
Pays any remaining balance on the lease that the insurance payout does not cover.
3. You (If No Gap Insurance)
Responsible for any difference between the insurance payout and the remaining lease balance.
What If You Want to Replace the Totaled Vehicle?
If your leased vehicle is totaled and you still need a vehicle:
- Leasing Company Options: Some leasing companies may offer you a replacement vehicle under a new lease.
- Shop for a New Lease: You can lease a different vehicle from any dealership.
- Buy a New Vehicle: Use any insurance payout you receive as a down payment.
Common Mistakes to Avoid
- Not Notifying the Leasing Company: Always inform the leasing company if the leased vehicle is involved in an accident.
- Overlooking Gap Insurance: Make sure you have gap insurance for your leased vehicle.
- Ignoring Repair Requirements: Follow the leasing company’s guidelines for repairs to avoid additional charges.
- Not Reviewing Your Lease Agreement: Understand your rights and responsibilities if your leased vehicle is damaged.
Frequently Asked Questions
Here are some FAQs about Leased Vehicles:
What If the At-Fault Driver’s Insurance Does Not Cover My Costs?
If the at-fault driver is uninsured or underinsured, your own insurance (collision or uninsured motorist coverage) may cover the damages.
Can I Continue Leasing After an Accident?
Yes, if the vehicle is repairable, you can continue leasing it. However, you may be responsible for diminished value.
What If I No Longer Want the Lease After an Accident?
You can explore options for an early lease termination, but this may involve penalties.
Will a Totaled Leased Vehicle Affect My Credit?
If you fail to pay any remaining lease balance after a total loss, it could negatively impact your credit.
About the Author
Neil Bhartia
Neil Bhartia isn’t your typical, stuffy attorney that you see on TV. While some have their sights exclusively on money and treat their clients like a number, Neil takes a personal interest in every single client he has. As an empath, Neil understands that people that seek legal help are typically in an involuntary, and stressful situation, and he goes out of his way to diffuse the stress and educate clients on each every detail of the legal process.
